BRMA’s ‘Trading Agreement’ Papers Aim for Reinsurance Contract Certainty

May 12, 2011

The New York-based Broker & Reinsurance Markets Association (BRMA) announced that it has developed and published “a Master Trading Agreement concept that essentially provides one solution for achieving contract certainty.”

The two papers – “A Contract Certain Product: Principles [and Practice] for the US Broker Reinsurance Market” and “Master Trading Agreement – A Practical Guide” – form the basis for establishing greater contract certainty between reinsurers and cedants.

In the introduction to the first paper BRMA noted: “Reinsurance has evolved considerably since the days when contracts were sealed by a handshake and the historical relationship approach between ceding companies and reinsurers has now been largely replaced by a short-term transactional method of engagement.”

The trend has been intensified by increased regulatory scrutiny, including SOX in the U.S., as well as the recent financial crisis, and the growing necessity for sound and transparent risk management. All of which mandate greater certainty. “In this arguably more contentious environment, relationships between ceding companies and reinsurers are now, more than ever before, driven by the letter of the reinsurance contract,” said the BRMA.

As a result much greater emphasis and importance is now being placed on “the content of the contract wordings that govern reinsurance placements.” However the BRMA also pointed out that “despite the heightened attention given to contracts, the industry has spent comparatively less effort refreshing the process used to develop and execute these contracts.

“While there have been some recent improvements, such as a general move from using ‘placement slips’ to providing full contract wordings with submissions, the industry needs to consider the adoption of additional refinements and improvements to the process of drafting, negotiating and finalizing contract documentation in order to meet the demands of today’s marketplace.”

Pam Parkos, executive director of BRMA, stated: “While great strides have taken place over the past decade in reinsurance contract turnaround time, the BRMA membership felt it could be more proactive and try a new approach. After much research and discussion, BRMA arrived at the conclusion that this concept for the Master Trading Agreement is the first step in the right direction.”

The BRMA was founded in 1986. It is a networking forum for property and casualty treaty reinsurance professionals. The membership consists of several of the foremost reinsurance organizations in the United States and Bermuda that “continually work to find ways to improve the efficiency and effectiveness of the reinsurance industry.”

Source: BRMA

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